Digital revenue keeps growing around the world. Now, the European Union wants in.
Last March, Pierre Moscovi, the Commissioner for Economic and Financial Affairs, along with Valdis Dombrovskis, Vice President for the Euro and Social Dialogue, had an idea.
Why not tax digital businesses to ensure that the European Union receives “a fair and growth-friendly” source of revenue?
Moving forward with their idea, Moscovi and Dombrovskis proposed two initiatives.
First, the European Commission would reform corporate tax rules. The EU would force businesses with “significant interactions with users through digital channels” to register profits, thus taxing them. Moscovi and Dombrovskis noted that this was the Commission’s “preferred long term solution.”
The proposed 3% levy later became known as the ‘GAFA’ tax, as it also targeted revenue from US tech giants in Europe – Google, Amazon, and Facebook. The digital services tax (DST) would target companies with worldwide revenues of over €750 million ($848.4 million) and €50 million ($56.7 million) in Europe.
Second, at the behest of “several Member States,” the European Commission would enact an interim tax covering digital activities.
Moscovi and Dombrovskis argued that the new measures would ensure that all companies pay a fair tax. French President Emmanuel Macron spearheaded the initiative in the European Union.
Predictably, digital businesses don’t agree. Now, they’ve written a letter to the European Commission, asking them to reconsider their decision.
When it comes to digital taxation, just say No.
Major European tech companies, including Spotify, Booking.com, and Rovio, have pushed back against the proposed initiatives.
In a letter sent to the EU’s 28 finance ministers, tech CEOs urged plans to withdraw the 3% digital services tax. This, they argue, would cause “material harm” to the European tech sector.
“The proposed DST has been designed with large and highly profitable companies in mind, but will have a disproportionate impact on European companies, resulting in unfair treatment.”
US tech giants could easily afford the new tax. But, most tech start-ups and new companies rely on digital revenue to grow and scale.
“The proposed DST would deprive these very businesses of an essential source of capital to reinvest in their growth, weakening their ability to compete globally.”
Tech companies may also have some unexpected allies.
Though Macron has pushed for the digital services tax, other EU member states have criticized the initiative. Splitting with the French President, Ireland, Finland, and the Czech Republic are among the countries who have stated the tax would harm bilateral tax agreements with non-EU countries.
The disagreements may ultimately scrap the proposed levy. The initiative requires the approval of all 28 member states.
In an effort to garner support, an EU spokesperson confirmed a surprising concession. Companies could deduct the DST from their corporate tax base.
“This will mitigate the risk of double taxation.”
Featured image by Håkan Dahlström (CC by 2.0).